Guru ji Ltd is considering a project having life of 4 years with investment layout of 50000 and zero salvage value, depreciation is charged on straight line method, annual revenue from roject is rs 125000 and annual cost excluding interest tax and depreciation are 30 000 , tax rate 50 % overall cost of capital (Ko) is 9% find out the Eva for last year 4th year

To calculate the Economic Value Added (EVA) for the 4th year, we'll follow these steps:

1. **Calculate the Earnings Before Interest and Taxes (EBIT) for Year 4.**
2. **Calculate the Net Operating Profit After Taxes (NOPAT).**
3. **Determine the Capital Employed.**
4. **Calculate the Weighted Average Cost of Capital (WACC) and the Economic Value Added (EVA).**

### Given Data:

- **Initial Investment**: ₹50,000
- **Project Life**: 4 years
- **Salvage Value**: ₹0
- **Depreciation Method**: Straight Line
- **Annual Revenue**: ₹1,25,000
- **Annual Costs (excluding interest, tax, and depreciation)**: ₹30,000
- **Tax Rate**: 50%
- **Cost of Capital (Ko)**: 9%

### Step 1: Calculate Annual Depreciation
Since the asset is depreciated on a straight-line basis over 4 years with zero salvage value:

\[
\text{Annual Depreciation} = \frac{\text{Initial Investment} - \text{Salvage Value}}{\text{Project Life}} = \frac{50,000 - 0}{4} = ₹12,500
\]

### Step 2: Calculate EBIT for Year 4
\[
\text{EBIT} = \text{Revenue} - \text{Costs} - \text{Depreciation}
\]
\[
\text{EBIT} = 1,25,000 - 30,000 - 12,500 = ₹82,500
\]

### Step 3: Calculate NOPAT (Net Operating Profit After Tax)
\[
\text{NOPAT} = \text{EBIT} \times (1 - \text{Tax Rate})
\]
\[
\text{NOPAT} = 82,500 \times (1 - 0.50) = 82,500 \times 0.50 = ₹41,250
\]

### Step 4: Determine Capital Employed
The capital employed remains constant throughout the project as the initial investment is ₹50,000.

### Step 5: Calculate EVA for Year 4
\[
\text{EVA} = \text{NOPAT} - (\text{Capital Employed} \times \text{Cost of Capital})
\]
\[
\text{EVA} = 41,250 - (50,000 \times 0.09)
\]
\[
\text{EVA} = 41,250 - 4,500 = ₹36,750
\]

Thus, the EVA for the 4th year is **₹36,750**.

Would you like more details or have any questions?

Here are some related questions:
1. How is EVA different from traditional profitability measures?
2. What is the impact of depreciation on EVA?
3. How would a change in the cost of capital affect the EVA calculation?
4. What are the advantages of using EVA as a performance measure?
5. How is EVA used in corporate decision-making?

**Tip:** EVA is a powerful tool for assessing the true economic profit of a project after accounting for the cost of capital, offering a clearer view of value creation than simple net income.

Learn how to calculate Economic Value Added (EVA) for the 4th year of Guru ji Ltd's project. Includes step-by-step calculation of EBIT, NOPAT, Capital Employed, and EVA. Project details: 4-year lifespan, ₹50,000 investment, ₹1,25,000 annual revenue, ₹30,000 annual costs, 50% tax rate, and 9% cost of capital (Ko).

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